Nov 15 2012
My IB year 2 students are in the process of writing their second Internal Assessment commentary (IA), a major component of their grade in the course. Last spring they wrote a commentary on a microeconomic topic, and this time around they are investigating macroeconomic issues to write about. I thought I’d write a quick post to offer some advice for conducting a solid commentary on a macroeconomic topic.
First of all, it should be pointed out that finding a good article to write a macro commentary on should be very easy. Pretty much any newspaper (print or digital) is bound to have a couple of macro-related stories on its front page any day of the week. The tricky part, however, is choosing an article on a topic that interests you, the student. One place to start to look for the perfect article is on the Welker’s Wikinomics Universe page, which includes over 40 live streams from different economics news sources. You can be sure that the articles you find here are current and that the sources have already been filtered by an experienced Econ teacher, so they can generally be considered appropriate.
WARNING: Make very sure that the article you are considering is NOT a blog post, a commentary or an editorial piece. It is strongly discouraged to write a commentary on another person’s commentary. One way to determine whether an article is a commentary is to look at the URL and if you see words like “blog” or “commentary” or “editorial”, or “opinion”, you should move on to another article.
I recommend my students choose an article about their own home country. This way, they have at least some vested interest in the issues they’re writing about.
Now, how to choose a good article. Below are some of the main themes in Macroeconomics that could serve as outstanding main ideas of an IB Economics commentary:
Economic growth: The media is obsessed with GDP growth rates, perhaps because society seems to be equally obsessed. Any article about growth (or the opposite of growth, recession), can provide you with lots of points for analysis and evaluation.
- What are the sources of growth or recession?
- Who are the winners and losers?
- What is the government doing to promote growth (or reduce the chance of inflation)?
- What are the short-run and long-run implications of economic growth for society?
- Does growth really make us better off?
- Is growth sustainable?
The tradeoff between inflation and unemployment: This relationship is best illustrated in the Phillips Curve model. It’s easy to find evidence of this tradeoff in the press, as inflation and unemployment are just behind GDP as the macroeconomic indicators most mentioned in the news.
- Why is there a tradeoff between these two indicators?
- What is the relationship between AD/AS and the Phillips Curve
- When should unemployment be the primary concern of policymakers? When should inflation be the primary concern?
- What are the effects of inflation on different stakeholders?
- What are the effects of unemployment on society?
- How can monetary and/or fiscal policy be used to reduce unemployment OR inflation, but not both?
- How could supply-side policies be used to bring down both inflation and unemployment?
- How might negative supply-shocks affect the SRAS and the short-run Phillips Curve?
- Does the tradeoff between these two indicators hold up in the long-run? Why or why not?
Income inequality: This is perhaps one of the MOST talked about economic topics in the news today. Rising Gini indexes in most developed economies indicate that inequality is growing, and this may be contributing to political and social discontent in the rich world.
- What are the sources of income inequality?
- What are the consequences of income inequality? (Economic, social, short-run and long-run)
- How does inequality affect economic growth? (positively or negatively?)
- How have government policies in a particular country contributed to growing inequality?
- How does the free market promote income inequality? (In other words, is it a market failure?)
- How can a nation’s tax code and system of social safety nets be used to reduce income inequality?
- What is the difference between equality and equity?
Fiscal policies: This is a big one. With America’s “fiscal cliff” all over the news and the European debt crisis fresh on people’s minds, it is hard not to find articles about fiscal policy today.
- How have past fiscal decisions by government contributed to the growing levels of debt in Europe and America today?
- What role to automatic stabilizers in fiscal policy have in dampening the effects of fluctuations in aggregate demand (either inflationary or recessionary effects)?
- How does the theory of the Keynesian spending multiplier provide an argument for the use of expansionary fiscal policy during recessions?
- How does the theory of the crowding-out effect provide opponents of the Keynesian view with an argument against the use of expansionary fiscal policy? (Why might government deficits lead to less private sector spending).
- What role can fiscal policy play in the short-run and in the long-run in promoting or inhibiting economic growth?
- What types of fiscal policies (particularly government spending) will best promote long-run economic growth?
Monetary policies: It’s really easy to find news articles in which central banks are mentioned. Whether it’s the “Fed” in the United States, the ECB in Europe, the People’s Bank of China, the Banke of England or the Indian National Bank, central banks are the masters of monetary policy, and the media follows their every move closely.
- What are the tools of monetary policy and how can it be used to stimulate or contract demand in an economy?
- When is monetary policy likely to be most effective at reducing unemployment?
- When is monetary policy likely to be most effective at reducing inflation?
- Why might a central bank’s primary objective (low inflation) conflict with the macroeconomic objectives of government (low unemployment)?
- How can monetary policy be used to support a government fiscal policies?
- What is the risk associated with continually increasing the supply of money in a nation?
Supply-side policies: “Austerity” is a word heard often in Europe today. The fear over large budget deficits has led several European governments to reduce government expenditures drastically on public goods and social spending. This is having major impacts on the quality of life in many European countries, and leading to unrest (and even riots) in some cases.
- What is the short-run effect of deficit reduction on aggregate demand?
- What is the argument for deficit reduction? How might such policies help an economy “self-correct” during periods of recession?
- How will smaller budget deficits lead to lower interest rates in the economy?
- How does reducing expenditures on transfer payments to the unemployed and poor in the economy promote more flexible labor markets?
- How might the de-regulation of industry and lower business taxes promote investments that lead to long-run economic growth?
- How does the supply-sider’s view of the macroeconomy differ from the Keynesian’s view? Which view is more valid?
The ideas above only scratch the surface of the potential areas of investigation a student could pursue in a Macroeconomics commentary. There is one model that ALL macro commentaries should employ, however, and that is the Aggregate Demand / Aggregate Supply model. Nearly every topic in this section of the course requires AD/AS analysis. Otherwise, there are several other models that could be used depending on what specific topic you are investigating. These are:
- Phillips Curve (both short-run and long-run)
- Lorenz Curve and Gini index (for income inequality)
- The Laffer Curve (for income inequality or supply-side policy)
- The Money Market diagram (for monetary policy)
- The loanable funds market (for fiscal policy)
- Bond market diagrams (for fiscal policy)
Have you already written a strong commentary on a macro topic? Would you like to your ideas about the assignment? Please post your own thoughts on this assignment below. If you have published your own commentary, feel free to post a link for others to see it!